Key Points

  • The Fifth Circuit held that the $25 million cap on supersedeas bonds in Texas Civil Practice and Remedies Code section 52.006(b)(2) does not apply in federal court.
  • The panel held that Federal Rule of Civil Procedure 69(a)(1) governs how a judgment is executed, not when enforcement may proceed, and so does not incorporate state rules on stays pending appeal.
  • The panel held that a broader reading of Rule 69(a)(1) would make Rule 62(f) and its lien condition superfluous, and noted that a Texas judgment is not a lien for Rule 62(f) purposes.
  • Under Erie, the panel classified the cap as procedural, reasoning that settlement pressure and the interests the cap protects are litigation interests rather than substantive rights.
  • Judge Oldham concurred in the judgment, writing that he would deny the motion under the discretion Rule 62 gives federal courts to set bond amounts without reaching Erie or Texas law.

Defendants who lose a large verdict in a Texas federal court cannot rely on a state law that caps appeal bonds at $25 million to stop the winners from collecting while the appeal proceeds, the U.S. Court of Appeals for the Fifth Circuit held on Oct. 13.

The published order denied a motion by Phillip Mulacek, Michelle Mulacek Vinson, Pierre Mulacek and Mauricette Mulacek. A jury returned a verdict against the four, and the U.S. District Court for the Southern District of Texas entered a judgment of more than $210 million in the suit brought by Carlo Giuseppe Civelli and Aster Capital S.A. (LTD) Panama. The Mulaceks asked to pause enforcement by posting a $25 million supersedeas bond.

The panel of Circuit Judges Higginson, Willett and Oldham ruled in a per curiam order, with Judge Andrew S. Oldham concurring only in the judgment. The decision means that a judgment debtor in a Texas federal court who seeks a stay must satisfy the federal standard, which ordinarily requires security for the full judgment, rather than the lower ceiling Texas sets for its own courts.

Federal Rule of Civil Procedure 62(b) permits a party to "obtain a stay by providing a bond or other security." The order, quoting the treatise Federal Practice and Procedure, said such a bond ordinarily "will be set in an amount that will permit satisfaction of the judgment in full, together with costs, interest, and damages for delay." The Mulaceks instead invoked Section 52.006(b)(2) of the Texas Civil Practice and Remedies Code, which caps supersedeas bonds at $25 million. The district court denied the request, and the Mulaceks renewed it in the Fifth Circuit.

The Mulaceks first argued that Federal Rule 69(a)(1) brought the Texas cap into federal court. That rule requires that "[t]he procedure on execution" of a federal judgment "must accord with the procedure of the state where the court is located." The panel said the phrase, read alone, could cover any state rule affecting enforcement of a judgment, or only the mechanics of collection. "Context favors the narrower reading," the court wrote.

"Rule 69 governs how a judgment is executed—not when or whether it may be executed at all," the panel wrote, noting that Rule 62 addresses when enforcement may proceed. Reading Rule 69 to absorb state stay rules "would turn a rule about how judgments are enforced into a rule about when enforcement may begin," the order said.

The broader reading would also make Rule 62(f) superfluous, the panel held. That provision entitles a judgment debtor "to the same stay of execution the state court would give," but only when the judgment is a lien on the debtor's property under state law. If Rule 69 already imported every state stay rule, the court wrote, Rule 62(f) "would be entirely unnecessary, and its lien condition would be not merely redundant but inexplicable." A footnote added that Rule 62(f) itself offered the Mulaceks no help, because the Fifth Circuit held in 2014 that a Texas judgment is not a lien within the meaning of that rule.

The Mulaceks' second argument rested on the Erie doctrine, named for the Supreme Court's 1938 decision in Erie R. Co. v. Tompkins, which requires federal courts sitting in diversity to apply state substantive law while following federal procedure. They contended that the cap determines outcomes because, without it, settlement leverage shifts to the party holding the judgment.

"That argument is accurate, but it proves too much," the panel wrote. The court said pleading, discovery and evidence rules all affect settlement dynamics without becoming substantive. "If settlement pressure were sufficient to make a rule substantive, the Erie line would cease to exist," the order said.

The panel also rejected the Mulaceks' contention that the cap is bound up with a state-created right, which a 2015 Texas decision, In re Longview Energy Co., described as "the right to a meaningful appeal." The order acknowledged that Texas courts have described the cap as striking a balance between the creditor's interest in the judgment and the debtor's access to appellate review. "But those are litigation interests—interests in how judgments are enforced and reviewed once liability is fixed," the panel wrote. "They are not the primary rights Erie was designed to protect."

The Mulaceks' final Erie argument, that disregarding the cap would defeat the doctrine's aims of discouraging forum shopping and avoiding unequal administration of the laws, "simply restates their prior arguments," the panel said. "That litigants may prefer one forum's bond rules to another's does not itself amount to the kind of forum shopping Erie addresses," the court wrote. Quoting the Supreme Court's 1945 decision in Guaranty Trust Co. of New York v. York, the panel concluded that the cap governs a matter that "concerns merely the manner and the means by which a right to recover . . . is enforced."

In a footnote, the majority declined to decide whether Rule 62, which the Supreme Court has said lets federal courts set bond amounts in their discretion, directly governs and so displaces the Erie inquiry. Judge Oldham would have decided the motion on that ground alone. "I agree that the motion to stay should be denied," he wrote. "But I would reach that result under Federal Rule of Civil Procedure 62, which 'allow[s] the federal courts to set the amount of the [bond] in their discretion.'" He added, "We have no need to consider Erie or Texas law."

"Texas's supersedeas-bond cap does not apply in federal court. The Mulaceks offer no other basis for a $25 million bond," the per curiam order concluded in denying the motion.

The order, entered in the Mulaceks' appeal, No. 26-20183, resolves only the bond request and does not address whether the Mulaceks will post a bond large enough to secure the full judgment.